Greetings from Las Vegas, home of the Consumer Electronics Show or CES. As we mentioned in last week’s column, CES is best when you plan out what to learn, then execute the plan. That’s not to say there can be no time to discover the latest in eye-massaging hardware (pictured), or to have your picture taken in the Qualcomm booth wearing the original Star Trek Captain’s jersey (pictures available upon request), but one cannot “go with the flow” at CES and achieve any result other than being washed away. The current of humanity is too strong – everywhere.
There was a Citi Investor Conference occurring in parallel with the show, and while I only attended a couple of sessions there, we’ll touch base on both T-Mobile’s and Time Warner Cable’s pre-announcements. Then we’ll dive into our CES observations (which includes a compilation of thoughts from about 20 Sunday Brief readers who took the time to send in a page).
T-Mobile and Time Warner Cable Preannounce Strong Earnings
Last Wednesday morning, T-Mobile announced very strong results for the fourth quarter which included:
- 917K branded postpaid net phone additions (ending number = 4 million)
- 3 million branded postpaid net additions (ending number = 31.7 million)
- 46% monthly postpaid churn (flat sequentially but down 27 basis points from 4Q 2014)
- 469K branded prepaid net phone additions (ending number = 17.6 million)
T-Mobile also indicated in the conference that EBITDA would come in at the high end of previous expectations ($2.1 billion for the quarter and $7.2 billion for the full year). It was a strong quarter, although T-Mobile acknowldeged that Sprint probably had a good one as well. Both Sprint and T-Mobile stood to gain the most with the launch of the iPhone6S (Sprint gained Carrier Aggregation which will allow for faster data speeds and T-Mobile gained the 700 MHz A Band), and it appears that each took advantage of the opportunity.
At the conference, T-Mobile briefly talked about their operational plans for 2016. Having a strong showing at the 600 MHz auction is definitely a priority, and they appear to be willing to use up to $10 billion to achieve that purpose. Expanding their selling/ marketing/ retail presence in their recently deployed 700 MHz markets is also a priority. T-Mobile further suggested that network spending will be higher in 2016.
While these figures are not delineated in wireless earnings (except AT&T), my hunch is that Verizon and AT&T’s gains are coming disproportionately in business and government (lower churn, highly relationship and contract driven, multi-product discounts, etc.), and are offset by (very) small business and mass market loses. As we get through this earnings season, we will also try to derive a “mass market” vs “enterprise” churn figure – a 1.46% level is a lot closer to AT&T and Verizon’s “mass market” figure than most people think.
Bottom Line: Right now, T-Mobile has their hands full with mass market gains from territory expansion (family plan growth in Decatur, IL, is likely a more profitable initiative than trying to unseat AT&T at Archer Daniels Midland). By the end of 2016, however, the difference between the market opportunitiies is going to be indistinguishable. T-Mobile’s ability to penetrate enterprise will directly depend on the quality of their broadband partner (which logically should include cable and/or Level3). For more on T-Mobile’s past forward, see last August’s Sunday Brief on the topic here.
Speaking of cable, Time Warner Cable (TWC) surprised everyone with their early January preannouncement (they also received approval for their merger from the New York Public Service Commission – it was truly a good week). The good news included over 1 million net additions in 2015 for both Digital Phone (1.032 million) and High Speed Internet (1 million). Time Warner also indicated that they grew video connections by 32,000. This implies 4Q net additions of 50K for video (38K net loss in 4Q 2014), 280K for High Speed Internet (168K in 4Q 2014), and 223K for Digital Phone (295K in 4Q 2014).
While cable companies do not announce their monthly churn, it’s likely that TWC’s figure is continuing to decline. With the housing market beginning to pick up and moving on the rise, states like North Carolina, Texas, and Southern California stand to disproportionately benefit (for an interesting study released on moving trends and reasons, click here). It also means that AT&T’s focus on the national offer of $200 for wireless and TV services probably cost them some broadband net additions.
The other interesting trend for TWC is their growth in home (Digital) phone services (Rob Marcus, TWC’s CEO is pictured). With the rise of unlimited voice and data plans (and technical options such as Voice over WiFi), many, including all of us at The Sunday Brief, gave up phone for dead – at best, it served as a churn reduction tool. The gains shown at the end of last year and beginning of 2015 were dismissed as window dressing for the Comcast (or Charter) merger. The pundits (including us) were dead wrong here: TWC is up to 6.3 million phone lines (21% penetration) at the end of 2015 after languishing at the 5 million level for most of 2013 and 2014. Phone has become an even more important lynchpin to the Triple Play (especially against Dish and DirecTV out of region).
Bottom Line: If Digital Phone has become the “breadsticks” of TWC’s (and the cable industry’s) offering, that’s OK. Revenues and profitability continue to rise, and the incremental monthly costs of adding phone subscribers to existing customer relationships is fairly minimal. Phone is supporting video growth and keeping High Speed Internet churn low. This is an effective bridge strategy until the merger is completed and the new Charter/ TWC/ Bright House wireless plans are articulated.
Here are the collective observations from CES:
- Amazon was embedded throughout the show and is boldly staking its claim to be the home hub. Samsung Smart TV be damned, Amazon is steadily striking partnerships and designing as much interoperability into their product as possible. Vivint announced the integration of Amazon Echo into Vivint’s Sky platform and prominantly demonstrated their technology at the show (more on the technolocy with a c|net demo here). A nice marriage of Vivint’s monthly recurring with Amazon’s equipment revenue models. For more on this theme, see this excellent article from TheVerge.
- Electric car technology is in the early innings. At the show, Chevrolet announced the mass availability of the Chevrolet Bolt (pictured), a $30K car (after rebates and tax incentives) that can go 200 miles on one charge. The battery system enables quick charging (up to 80%) in 30 minutes with a full charge in less than one hour. Also at the show, scandel-plagued Volkswagen introduced their BUDD-e concept vehicle which claims to be able to go 373 miles on one charge. What was unveiled in Las Vegas is likely a vision of what will actually be rolling off production lines, but breaking the 300 mile barrier woud be significant (six 50-mile round trips might be enough for many commuters for an entire week). For more on these two vehicles and a few more, check out this article from ExtremeTech.
- Wi-Fi is about to get a sizeable upgrade that extends its data reach. While the focus of CES is on devices that use technologies, the Wi-Fi Alliance made a very big announcement on Monday with the finalization of the HaLow standard. Instead of using the traditional 2.4GHz or 5 GHz bands, HaLow uses the unlicensed portion set aside in the 900 MHz band. As we have discussed many times with respect to carrier licensed spectrum, lower MHz frequencies carry signals farther and require less power than higher ones. The interoperability of the HaLow standard with existing 2.4 and 5.0 GHz standards allows new devices (especially wearables) to work out of the box. It will be interesting to see how wireless carriers, and particularly T-Mobile, work with this new standard to improve in-home and in-office coverage. A good article on the topic from BGR is here.
However, if you need shorter ranges and higher speeds, the introduction of the TP-Link 802.11 and WiGig router (pictured) is the bleeding edge of new spectrum use (60 GHz). This is an early model of what is sure to evolve into a new and different way to cut the cord (perhaps even from cable modem to the TV or computer depending on the distance between devices), but the promise of up to 4.6 Gbps (not a misprint) has some early adopters taking a serious look at the technology. A good overview of the router and its capabilities is here and the announcement from TP-Link is here.
There’s a lot more to dive into: Bluetooth embedded everywhere, Baby Tech (kudos to Starling for their award), in-car wireless technology (see Vinli/ Uber announcement here – hopefullly the beginning of a longer term relationship), and AT&T’s Smart Cities and Houston Foundry announcements are just the tip of the iceberg.
Next week, we’ll move beyond the preannouncements to determine who grew profitable market share at the end of 2015. Until then, please invite one of your colleagues to become a regular Sunday Brief reader by having them drop a quick note to email@example.com. We’ll subscribe them as soon as we can (and they can go to www.mysundaybrief.com for the full archive). Thanks again for your readership, and Go Chiefs!